BAKU, Azerbaijan — The world's oil barons called it "the contract of the century" and, by most accounts, they weren't exaggerating. Twenty years ago, Azerbaijan's leader signed a deal with not one but a dozen multinational oil and gas giants to help the country bring its astounding energy riches to the global marketplace. Since then, its transformation from war-torn former Soviet republic to high-rolling petro-powerhouse has been steady and swift. Not so for its nearest neighbours.
"We noticed a boom in fashion as soon as the Baku–Tbilisi–Ceyhan pipeline was completed and started pumping out oil [in 2005]," says the fashion editor of one of Azerbaijan's leading style magazines, speaking on the condition of anonymity. "That's around the time our first issue was published. The country started to reap huge profits right away. Within a few years, Gucci, Dior, Burberry, Valentino and Dolce & Gabbana were already here building boutiques. Our standard of living changed."
In the last five years alone, the number of affluent people in Azerbaijan has more than quadrupled, according to Euromonitor International, a market research firm that tracks households with an annual disposable income over $75,000. Thanks almost entirely to the black gold filling its coffers, Azerbaijan's economy is estimated to have grown a modest 5 percent in 2013, following breakneck double-digit growth over much of the past decade.
As if the inseparable bond between oil money and fashion weren't obvious enough in Baku, the majority of the brands descending on the city ended up along Neftchilar Avenue – which in the Azeri language means 'Oil Workers’ Avenue'. It is here too, on the city's corniche hugging the Caspian Sea, where Azerbaijan's luxury retail mogul erected an enormous multibrand landmark a few years ago. With an impressive 250 top-tier and designer brands bedecking three floors, storied houses like Alaïa, Balmain and Carven keep company with niche players such as Sacai and Thome Browne at the very aptly named Emporium.
Vugar Aliyev is the president and founder of Sinteks, the company behind Emporium and the operator of around 40 international designer monobrand stores in Baku – which makes him the biggest player in town, hands-down. Next on his agenda is to expand the footprint of his luxury brand portfolio beyond the Port Baku Mall as part of a mixed-use residential retail development. Aliyev has very deep pockets.
Anyone with even a fleeting knowledge of the country will be familiar with the Aliyev name. It looms large across virtually every sector of business, weaving the nation's cultural fabric tightly together with politics and fuelling critics of the ruling family with charges of nepotism. Heydar Aliyev effectively led the country for 30 years, first at the helm during the Soviet era then after independence until 2003 when, upon his death, power was transferred to his son Ilham Aliyev, the current president.
His wife, first lady Mehriban Aliyeva, is an insatiable couture client and style icon around the region whose influence is said to spill over into many of the creative industries. What's more, Aliyeva's daughter, Leyla, is editor of Baku International, a fashion and art quarterly published by contract with Condé Nast and her niece is reportedly behind Nargis magazine, a more local fashion and society glossy. Another niece is the Central Saint Martins trained Aida Mahmudova, who founded the highly-acclaimed Yarat contemporary art foundation and moves in very stylish international circles.
Although the Azerbaijani market is clearly dominated by locals – in particular by the inner circle of the ruling elites – a few other operators have managed to stake a claim. Farid Novruzi's Novco owns the franchise rights for the likes of Mango, Adidas, Nike, Hackett, Monsoon, Sisley and Benetton. Clustering his assets around the three major non-luxury malls of Park Bulvar, 28 Mall and MetroPark, Novruzi's main rival is RGA (Retail Group Azerbaijan) which acquired the Inditex Group brand franchises through a partnership with Saudi-based firm Alhokair.
Azerbaijan has been on the fashion radar for a few years now thanks to the reputation of its big spenders, who make the rounds shopping their way through Europe, Istanbul, Moscow and Dubai. Baku's skyline has also caught the attention of the design-conscious thanks to eye-popping blue-chip architectural commissions like the Flame Towers, Crystal Hall and most recently, Zaha Hadid's Heydar Aliyev Center which saw fashion industry bigwigs clamber to the city for its opening event late last year. Marquee names like Tom Ford choosing to open in Baku ahead of other much bigger emerging markets has also helped spark interest.
But what's making the serious fashion insiders sit up and take notice is the buzz surrounding the imminent opening of a major department store there. In the coming months, Harvey Nichols Baku will bow in the newly constructed Globus Plaza through a license with local conglomerate General Construction LLC. Joseph Wan, the former CEO of Harvey Nichols who brokered the deal, has a nose for sniffing out the precise moment when emerging markets are ripe for entry. Over the past two decades, he has overseen the careful, gradual international roll-out into Riyadh, Hong Kong, Dubai, Istanbul and Kuwait.
Dunyamin Khalilov, chairman of General Construction LLC, seems entirely sanguine about the future deal: “Our own research and experience points to a strong market for the brands offered by Harvey Nichols. I'm convinced our knowledge of the marketplace and the substantial resources within our organisation will contribute to a dynamic and successful collaboration,” he says.
Khalilov's "substantial resources" are undoubtedly what drew Wan to explore Baku in the first place — the other being the low-risk business model he has employed for a foreign expansion strategy based on license-based partnerships rather than joint ventures or subsidiaries. Nevertheless, it is a big undertaking for Harvey Nichols and clearly points toward future opportunities.
The fashion editor who requested anonymity also believes that the market is nowhere near saturation point, despite voices to the contrary claiming that several of the Azerbaijani retail developments are largely vanity projects. "We have operators like Italdizain and Louvre Distribution bringing in most of the luxury jewellery and timepieces. But we're still missing some major brands like Louis Vuitton, Chanel and Hermès [who tend to open wholly-owned stores independent of local partners] not to mention big gaps in the mass market where H&M and C&A are usually positioned," she said.
The fashion media market has similar gaps. It is interesting that homegrown fashion titles like Baku, Nargis and Passage appear to be thriving while most major international publishing franchises have yet to bow in Azerbaijan despite its increasingly well-heeled and wealthy consumers. Only L'Officiel and Cosmopolitan have local editions in a country with a potential readership four times bigger than that of Dubai.
Some foreign observers suggest the absence of other magazines is yet another sign of the sort of crony capitalism rampant in the country which stifles competition. It's worth noting that, once again, Transparency International scored Azerbaijan extremely low last year in its Perceived Corruption Index, earning it a meagre 28 out of 100 possible points toward a healthy image.
Although Azerbaijan clearly dominates the Caucasus region thanks to unrivalled oil wealth and unrivalled scale (a population of 9 million), its two much smaller neighbours of Armenia (3 million) and Georgia (5 million) have at least one advantage. According to A.T. Kearney, which ranks developing countries in its Global Retail Development Index, Azerbaijan came close to the bottom of the list. Armenia and Georgia, on the other, hand both appeared in the top 10.
One reason is what the management consultancy calls 'country and business risk', which measures among other things political factors and corruption. Certainly both Armenia and Georgia have significant problems of their own in this arena but, by comparison to Azerbaijan, it would appear they are somehow better off in terms of their overall business culture. The trade-off comes by way of political instability which is a major issue for both of the smaller economies.
"Georgia has gone through some really difficult times since independence," says Sofia Tchkonia, the maverick behind a foundation supporting the international fashion festival 'Be Next', which is held annually in Georgia's second city of Batumi and the ARTGeorgia event which she brings to Paris during couture fashion week.
Georgia is still smarting from the 2008 war it lost when Russia effectively took control of its two separatists regions of South Ossetia and Abkhazia. "Of course, this continues to affect the market and many investors are afraid to enter. We have some boutiques in our capital Tbilisi now. There's Burberry, Zegna, Cartier and a few other luxury brands and in the malls we have Zara, H&M and the like. But we still need to prove that we can solve our stability and security issues before we can expect the market to develop much more," she says.
Tchkonia suggests that instability is not only why international fashion brands aren't investing themselves but also why there aren't many local Georgian players either. Apart from ICR Trade, which has the franchise for several footwear labels, most of the what is available in Georgian stores can be traced to foreign companies in the nearby region, mostly from Turkey, Armenia and the Gulf.
"It's a shame that we don't have more available really because, frankly, Georgians have quite good taste and love to dress well. Even during Soviet times Georgian women were known around the rest of the Soviet Union for this. It was very difficult to find even stockings back then but somehow Georgian women managed to dress like movie stars," she says.
Georgian consumers and designers alike are often considered to be slightly more adventurous than their neighbours in the Caucasus. Fashion graduates from the Tbilisi State Academy of Arts have begun to catch the attention of the outside world because of their experimental spirit, most notably after being selected by the British Fashion Council's International Fashion Showcase in London the past two years.
Tastes certainly vary around the Caucasus region, albeit in ways that only locals can often distinguish. In Azerbaijan, for example, where there is by far the most wealth and most variety of brands as well as merchandise, consumers appear to be slightly more in tune with directions in the Russian market.
"We can't compare ourselves with the Russian or European market quite yet since global fashion has only been with us for about six to seven years. In some ways, we feel our market is still virgin territory but it's impressive how quickly we're moving forward. From year to year customers become more educated even about the most minute technical details and fabrication," said the fashion editor.
Alex Mirzoyan, the responsible editor of Luxury Georgia magazine is based in neighbouring Armenia, where the firm's publishing house is headquartered, and has a unique bicultural perspective on the region.
"Of course the influence of Russia on post-Soviet countries is big, not only in terms of fashion but also in so many other spheres. But I'd say its style influence is noticed the least in Georgia. And Armenia strives to be compared with Europe, not Russia," says Mirzoyan.
"The economic crisis affected both countries greatly. Some international brands even stopped working in Armenia around that time but now there's a new phase of development starting. We have brand boutiques and representatives of Zilli, Ermenegildo Zegna, Burberry, Brioni, Canali, Billionaire, Hugo Boss and others. Soon I hear that Versace and Ralph Lauren will also open in Armenia," Mirzoyan adds.
Hrachuhi Utmazyan, editor-in-chief of Cosmopolitan Armenia, believes that the real milestone in Armenia came in 2012 when Dalma Garden Shopping Mall opened about a year after her magazine launched.
"That's when over 25 new international brands were introduced to the market. Then, last month we had the grand opening of the Yerevan Mall. There are important multibrand stores now too. But the main challenge besides a culture that can be considered conservative and reserved is the country's geographical location. We're landlocked."
Geopolitics play an incredibly big role in the future of Caucasus region today, colouring many aspects of these three markets which have been carved up out of a narrow mountainous corridor. Over the millennia, a succession of empires have left their mark – the Persians, the Ottomans and the Russians to name but a few – yet each country here remains astonishingly rich and distinctive. In a region that could be squeezed into half of Italy's boot, the Caucasus countries are home to some of the earliest Christian and Muslim communities in the world and speak languages so diverse that they use four totally different writing scripts.
Azerbaijan, Armenia and Georgia not only have many complex rivalries, alliances and simmering conflicts with one another but also with the precarious giants on their doorstep — notably Iran, Turkey and Russia. How lucrative the fashion market here becomes in subsequent years depends on how well their economies are able to take advantage of their unique position at the crossroads of Europe, the Middle East and Central Asia – rather than falling victim to its often explosive disposition.
Marvin Traub Associates is a global business development and management consulting firm focused on growing businesses in the premium fashion retail and consumer products industries. Clients range from brands and retailers, to real estate developers and technology companies.